Eurozone crisis: angry Greeks condemn EU plot to control its finances

Helena Smith in Athens guardian.co.uk, Sunday 29 January 2012 20.15 GMT

German plan to install commissioner in Athens with veto powers over the Greek budget dismissed as 'laughable'

Greece is opposed to Angela Merkel's plan of putting a commissioner in Athens with veto powers over budget. Photograph: Sean Gallup/Getty Images

Greece has reacted furiously to a German proposal that an EU budget commissioner with oversight of its economy be installed in Athens after mounting speculation that international lenders will have to stump up yet more money for the country.

The escalating row threatened to eclipse Monday's summit after Greece's finance minister, Evangelos Venizelos, issued a tart response to the suggestion, saying his compatriots were themselves capable of fulfilling the "historical obligation" to take the country out of crisis.

The proposal, in a leaked document, argued for the creation of a commissioner with veto powers over the Greek budget, saying Athens' inability to meet fiscal targets had made the post a precondition of further rescue funds from its "troika" of creditors: the EU, IMF and ECB.

"Budget consolidation has to be put under a strict steering and control system," noted the document. "Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time."

Under the plan, European institutions would have direct control over Greece's budget decisions in what would amount to an extraordinary depletion of a member state's independence in conducting its own affairs.

With the atmosphere among recession-hit Greeks becoming increasingly explosive three years into the crisis, the proposal was angrily denounced with one politician slamming it as the "product of a sick imagination".

"It's absolutely laughable," said a senior government source. "It's a draft paper that appears to have been deliberately leaked but we have no idea who the author is or where it's come from in the German government."

The spat erupted amid reports that the €130bn (£108bn) aid package, agreed as part of a second bailout for the country last October, would now not be enough.

Citing Athens' worsening economic performance and prospects, the German news magazine Der Spiegel quoted a troika official as saying that Greece could need €145bn to be saved once and for all.

Last week, the EU economic and monetary affairs commissioner, Olli Rehn, said a revised analysis had shown that more rescue loans would be needed to make up for a shortfall in the second aid package. The extra money, he said, was required to ensure that Greece's €350bn debt burden was reduced to 120% of GDP by 2020 – a figure that is seen as manageable.

To keep bankruptcy at bay Athens received €110bn from the EU and IMF in May 2010, the biggest bailout in western history.

With European taxpayers already irate that Greece will need yet more funds to keep afloat, the €130bn financial support load had previously been seen as a red line across which no EU government was willing to step.

The spectre of the rescue programme being expanded appeared to be the biggest obstacle to a debt deal between Greece and its private sector creditors finally being concluded over the weekend.

Greek officials said while the contentious issue of interest rates on new bonds had been settled – with one source describing the coupon as "a figure that has pleased everyone" – the agreement would not be announced until there was consensus over the second bailout.

The eurozone's first ever debt restructuring, the bond swap foresees banks and other private investors voluntarily accepting a 50% loss in the value of their holdings, a writedown that will slice about €100bn from the nation's debt pile.

Private sector participation had been set as a prerequisite of further aid being given to Greece. "We are one step before [agreement] being reached," said Venizelos.

With Athens facing repayment of €14.5bn of debt on March 20 – money it does not have – time is of the essence in securing a deal.

But negotiations with international debt inspectors that have been conducted in tandem with talks between the government and private creditors have been vastly different in nature.

In what officials have described as "tense discussions", Greek government ministers have argued fiercely with auditors over the need for further belt-tightening measures to plug a burgeoning budget black hole.

The atmosphere deteriorated last week after the troika urged the interim coalition government to make further savage spending cuts.

The demands come amid growing criticism over the performance of Lucas Papademos, the technocrat economist placed at the helm of Athens's transitional government last November.

Highlighting the mounting frustration over Greece's failure to enact economic and structural reforms, the IMF's managing director, Christine Lagarde, said over the weekend: "We're not terribly positive about what has been done, but we want to put together a programme for the country. The country itself has to provide adjustment."

In a bid to rally support for the austerity Athens will inevitably have to impose, Papademos held urgent talks with the leaders of the three parties backing his coalition telling them that without further belt-tightening Greece will not be given the funds it needs to survive. He emerged saying there had been "a convergence of views".

But with general elections scheduled in the spring and no politician willing to be associated with policies that have brought Greeks to their knees it remains to be seen whether the country's political class will put national interests before party politics.

Eurozone crisis: angry Greeks condemn EU plot to control its finances | World news | guardian.co.uk

We’re on the brink, warns Greece ahead of summit

 

By James Kirkup 9:50PM GMT 29 Jan 2012

Greece faces “the spectre of bankruptcy and all the dire consequences that entails”, the Greek prime minister warned last night.

Photo: AP

Lucas Papademos said that unless the country’s international backers agreed to a new bail-out, Greece would be unable to pay off its loans and be forced out of the eurozone.

EU leaders will meet in Brussels tonight amid growing concern that Greece will fail to implement the austerity measures its international backers are demanding as a condition of the latest package of financial support. Without that bail-out, Greece will be unable to repay €15 billion of loans due in March.

Amid doubts about Greek willingness to cut spending and raise taxes, Germany has suggested that a European commissioner should take effective control of Greek fiscal policy to ensure the country accepts austerity. Evangelos Venizelos, the Greek finance minister, rejected that plan, saying it would undermine Greece’s “national identity and dignity”.

Philipp Rösler, the German economy minister, insisted that some external control over Greek policies had to be considered. “If the Greeks fail to do this themselves, the leadership and monitoring must come in a stronger way from outside, for example via the EU,” he said.

Iain Duncan Smith, the Work and Pensions Secretary, suggested that the German plan was a threat to European democracy.

We’re on the brink, warns Greece ahead of summit - Telegraph

The great EU conjuring trick

By Allan Little, and Jane Beresford

7:00AM GMT 29 Jan 2012

The original players behind the single currency claim astonishing sleights of hand have brought the euro to its knees.

Currency wobble: leaders of the EU at a recent meeting Photo: REUTERS

In the Nineties, the economist Miranda Xafa was at Salomon Brothers in London, watching from a distance as her native Greece prepared to enter the euro. She knew – and advised her clients – that Greece’s economy was not ready, that the statistics its government was publishing did not reflect reality.

“I’d come to Athens from London with clients,” she told me. “We always saw the head of the statistical agency of Greece who compiled statistics on the debt, the deficit and so on. We’d call him the magician because he could make everything disappear. He made inflation disappear. And he made the deficit disappear.”

Take, she says, the Greek state railway. “There were more employees than passengers. A former minister, Stefanos Manos, said publicly at the time that it would be cheaper to send everyone by taxi. How did they cover this deficit? The company issued shares that the government would buy. So it was counted not as expenditure, but as a financial transaction” – and did not appear on the budget balance sheet.

In 2004, with Greece a member of the euro, the conjuring trick was becoming transparent. A new, centre-right government was elected, with Peter Doukas appointed Budget Minister.

“I asked the senior staff of the ministry to give me details of the budget that had been passed the previous December,” says Doukas. “I said don’t worry about persecution or anything, just tell me the true story.”

 

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The difference between the published deficit and the real one was huge. “[It] was about 7 per cent of GDP. The budget said the deficit was 1.5 per cent. The real shortfall was 8.3 per cent.” Under the Maastricht treaty, member states must keep their budget deficits below 3 per cent of GDP.

So what did he do? “I said we should start chopping down the budget. But the answer I got at the time was: 'We have the Olympic Games in a few months and we cannot upset the whole population and have strikes and everything just before the Olympic Games.’”

To meet the deficit, Greece borrowed and borrowed. Banks queued up to lend. The markets did not believe there was a risk of default because Greece’s currency was locked into that of Germany.

Germany drove monetary union in the Nineties. Berlin had come to see exchange-rate instability as a form of back-door protectionism. Exports account for a third of Germany’s economic output and most of its exports go to the EU.

“We wanted Italy to stop devaluing the lira,” says Dietrich Von Kyaw, then Germany’s ambassador to the EU. “This has to do with things like Bavaria needing to continue selling surplus milk to Italy, or Volkswagen wishing to keep competition from Fiat within certain limits.”

Admitting Italy into the euro in the first wave looks, in retrospect, to be the key mistake. “Think back 20 years when we were working all this out,” says John (now Lord) Kerr, former British ambassador to the EU. “My view was that it would be five, possibly six countries that would start. It never occurred to me that Italy or Spain, let alone Greece, would qualify.”

Italy’s failure to meet the Maastricht criteria meant it was the only one of the six founder states of the old European Community that looked likely to be left behind. Italy’s national debt was around 120 per cent of GDP. Maastricht required it to be below 60 per cent.

“But it was a very unusual kind of debt,” says Joachim Bitterlich, then a senior foreign policy adviser to Chancellor Kohl and one of the architects of monetary union. “It was atypical because 80 per cent of what Italy owed was to its own people. It was internal, not external. So people said that under these circumstances, we can accept the Italians.”

Did you bend the rules to let Italy in? I ask him. “Yes. To some extent. We interpreted the rules at that time in favour of the Italians.”

It was part of a pattern. At key moments, political imperatives trumped economic better judgement. Italian membership opened the door to Portugal, Spain, Greece and others.

But it wasn’t the behaviour of the eurozone’s southern members that first plunged the euro into crisis. There was, from the start, a way for the EU to police the economies of member states. It was called the Stability and Growth Pact, and it wasn’t Italy or Greece that torpedoed it; it was Germany.

In 2003, France and Germany had both overspent, and their budget deficits exceeded the 3 per cent limit to which they were bound. The Commission – then led by the former Italian Prime Minister Romano Prodi – had the power to fine them. But finance ministers voted not to enforce the rules, which were designed to protect the stability of the euro. Britain’s Chancellor, Gordon Brown, still committing sterling to its love affair with prudence, voted with the French and Germans.

The EU is often criticised for the power wielded by the unelected European Commission. On this pivotal occasion, the Commission ran up against something much more powerful: the combined will of democratically elected governments.

“Clearly,” Romano Prodi told me, “I had not enough power. I tried and they [the finance ministers] told me to shut up.”

Jacques Lafitte was seconded to Brussels in the Nineties to help construct the single currency. He said the technocrats working on the project knew that some central mechanism was needed to ensure member governments complied with the rules. “We made suggestions to the member states at the time but these were rejected because they would have involved transferring sovereignty from national governments to Brussels or maybe Frankfurt,” he says.

“We knew deep inside. Again, we could not say so publicly. We were mere technocrats. We were supposed to shut up and listen to the member states who, almost by definition, knew better. I was convinced it was not enough.”

Sir John Grant was Britain’s ambassador to the EU at the meeting of finance ministers. He says: “The credibility of the Commission and the readiness of the member states to accept its authority as the independent enforcer of the Maastricht criteria was gravely undermined.”

It was also a signal to everyone else in Europe. “The view,” says the Greek budget minister Peter Doukas, “was that if the big boys won’t impose discipline on themselves, they’ll be more relaxed in enforcing the treaty [on us]. No one can impose sanctions on Germany and France. They are the European superpowers. So they won’t adhere. The pressure was simply not there.”

Europe is wise after the event. The power the nations retained to police their own budgets is being stripped away. Governments in the eurozone will, in future, be required to submit their budgets to Brussels for approval. How long before national populations revolt in the name of democracy?

From Helsinki to Athens, revolt is stirring, and often shot through with anti-German sentiment. “Germany is the locomotive of pain for other people’s problems,” says Doukas. “It will ask to have a much bigger say in what’s happening in Greece and Italy and Spain. The centre of gravity of Europe is rapidly moving towards Berlin. In the fiscal union they will be the ones dictating the terms, with France as a junior partner.”

The idea of Germany throwing its weight around spooks the Germans themselves. They do not seek, and do not want, leadership in Europe. But leadership has been thrust upon them.

In November, in a speech in Berlin, the Polish Foreign Minister Radoslaw Sikorski appealed to Germany to act. “I will probably be the first Polish foreign ministry in history to say so but here it is: I fear German power less than I begin to fear German inactivity.”

The unfolding paradox is this: that a process motivated 20 years ago by a desire to Europeanise Germany looks likely to have precisely the opposite effect. Much of Europe will now be required to Germanise its economic governance.

Allan Little is a special correspondent for the BBC

The great EU conjuring trick - Telegraph

Germany wants EU control of Greek budget

Posted January 29, 2012 13:44:20

Photo: Greek prime minister Lucas Papademos (AFP: Aris Messinis )

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Map: Greece

Greece has rejected a German proposal to appoint a European Union commissioner with the power to veto Greek budgets.

German officials suggested the commissioner, appointed by the other eurozone finance ministers, would ensure Greek government revenue was spent on paying off the country's huge debts.

But Greek officials have reacted angrily to the proposal, with a government spokesman saying only Greece should have control over tax and spending.

The country's education minister and former EU commissioner, Anna Diamantopoulou, rejected the notion as "the product of a sick imagination".

Greece is failing to meet targets set by international creditors in return for bailout money.

The proposal emerged ahead of a meeting of EU leaders in Brussels on Monday and focused on a new fiscal pact.

But the European Commission said there was no question of Athens surrendering budgetary control.

"The Commission is committed to further reinforcing its monitoring capacity and is currently developing its capacity on the ground," said economic affairs spokesman Amadeu Altafaj.

However, such key decisions "must remain the full responsibility of the Greek government," he said, which was "accountable before its citizens and its institutions."

"That responsibility lies on their shoulders and it must remain so."

 

Debt talks

And senior Greek politicians and private creditors say they are close to reaching an agreement on writing down Greek debt to avert a looming default.

The country is trying to wrap up a deal with private creditors in which they would accept a 50 per cent cut on the 200 billion euros of debt they hold.

Talks have so far stalled on the amount of interest to be paid on the remaining debt.

Prime minister Lucas Papademos and finance minister Evangelos Venizelos led 90-minute talks on Saturday with Institute of International Finance (IIF) chief Charles Dallara ahead of the European summit on Monday.

Mr Venizelos told reporters he was hopeful of a deal within days.

Germany wants EU control of Greek budget - ABC News (Australian Broadcasting Corporation)

Greece plays down reading of Angela Merkel's financial meltdown remarks

Helena Smith in Athens

guardian.co.uk, Wednesday 25 January 2012 20.05 GMT

German chancellor has not given up hope on Greece's ability to be saved from economic collapse, says Athens

The German chancellor Angela Merkel's comments came ahead of talks resuming between Greece and its private creditors. Photograph: Fabrice Coffrini/AFP/Getty Images

Greece has played down comments by Angela Merkel which cast doubt on the debt-stricken country's ability to be saved from economic collapse, saying they had been "over-read" by the media.

Within hours of the German chancellor's remarks in a Guardian interview, Greek officials said there was no indication that Berlin had "given up hope" on Athens coming out of its worst economic crisis in modern times.

"We don't have any such indication of imminent failure," said a high-level source, speaking anonymously. "On the contrary they [the Germans] are working hard for success."

Ahead of a keynote speech at the World Economic Forum in Davos, Switzerland, Merkel said: "We haven't overcome the crisis yet. Of course, there's Greece, a special case where, despite all the efforts that have been made, neither the Greeks themselves nor the international community have yet managed to stabilise the situation."

But officials close to the interim Greek prime minister, Lucas Papademos, said: "I wouldn't take those words to mean that she has given up hope."

Papademos, a former vice-president of the European Central Bank, has been in regular contact with the German chancellor since taking over the reins of government in November.

Although discussions with the private sector over a bond swap deal – a precondition of Athens receiving further aid from its "troika" of creditors, the EU, ECB and IMF – were fraught, Greece was not about to be abandoned.

"What [Merkel] is simply saying is that we haven't, as yet, fully stabilised the fiscal situation which is something that no one would disagree with," said George Pagoulatos, an economics professor and one of Papademos's senior advisers.

"This is the precise purpose of a successful conclusion of the PSI [private sector involvement] discussions. Once they, and the loan agreement, are completed we will be standing on firmer ground and able to say that the situation has been stabilised."

The negotiations are set to resume (for the third time in as many weeks) on Thursday when Charles Dallara, who heads the Institute of International Finance (IIF), the global body representing private bondholders, returns to Athens.

Government officials said both sides were "very near" to a deal. The alternative – a Greek default that could have devastating repercussions for the eurozone and beyond – was not only "too awful" to contemplate but had concentrated minds.

"All sides understand the consequences of failure," said another official well-briefed on the negotiations. "A few decimal points on coupons are not going to derail the process. If necessary, minor concessions will be made," he added, referring to EU and IMF demands that private creditors accept lower interest rate on the new bonds.

But three years into the debt crisis, there is no doubt that anger is mounting within the EU and among the Greek public.

Fury over the tardiness with which Athens has applied economic and structural reforms has reached boiling point – not least in Berlin, which has bankrolled the €110bn package of rescue funds that Greece has received so far.

Clearly piqued by the foot-dragging, visiting debt inspectors have blamed the lack of progress on political posturing ahead of general elections in the spring.

With Greece missing fiscal targets, creditors have upped pressure on Papademos's three-party transitional government, demanding that wages be further slashed, bonuses be scrapped and employees sacked en masse from a bloated public sector.

The call for additional belt-tightening follows a wave of wage and pension cuts and tax rises. "They want to turn us into modern day slaves," said Stathis Anestis, at the confederation of Greek workers. "There will be such resistance, such rebellion that they will rub their eyes in disbelief."

To make the point, communist unionists with banners proclaiming "troika get out of Greece" blockaded the hotel where debt inspectors were staying on Wednesday in an attempt to stop the monitors sharing their "evil policies" with government officials.

Greece plays down reading of Angela Merkel's financial meltdown remarks | World news | The Guardian

Angela Merkel casts doubt on saving Greece from financial meltdown

Ian Traynor, Europe editor

guardian.co.uk, Wednesday 25 January 2012 10.30 GMT

German chancellor speaks candidly to the Guardian and five other leading European newspapers as part of a unique collaboration to explore the EU's predicament

Angela Merkel, the German chancellor, said efforts by the international community to stabilise the situation in Greece had not worked. Photograph: Michael Sohn/AP

Angela Merkel has cast doubt for the first time on Europe's chances of saving Greece from financial meltdown and sovereign default, conceding that Europe's first ever multibillion euro bailout coupled with savage austerity was not working after a two-year crisis that has brought the single currency to the brink of unravelling.

In an interview with the Guardian and five other leading European newspapers, the German chancellor also insisted – against widespread resistance elsewhere in the eurozone and in the UK – that the European court of justice (ECJ) be empowered to police public spending and budget policies of the 17 countries in the euro.

She also called for the eventual creation of a European political union, with many more national powers ceded to a central government, a strengthened bicameral European parliament, and the ECJ assuming the role of Europe's supreme court.

Days before the latest EU summit, which, at Merkel's insistence and evoking scant enthusiasm elsewhere, is to finalise an international treaty between eurozone governments entrenching German-style fiscal and budgetary rigour in all single currency countries, the chancellor admitted having doubts about the strategy she had pursued during the crisis.

"We haven't overcome the crisis yet. Of course, there's Greece, a special case where, despite all the efforts that have been made, neither the Greeks themselves nor the international community have yet managed to stabilise the situation."

Asked about the European response over the past two years, during which Berlin has often dictated terms and encountered strong resistance in Brussels, Paris, and at the European Central Bank in Frankfurt, Merkel said: "Good politicians always have doubts, as a way of constantly reviewing whether they are on the right track." There were no doubts about her aim – to save the euro and preserve the EU. The reservations concerned the means to those ends.

With Europe's biggest ever crisis moving into its third year, the chancellor is facing growing resistance to her key aim at Monday's summit – finalising the "fiscal compact" treaty that is the euro's new rulebook, foreseeing quasi-automatic fines for fiscal sinners, empowering the Luxembourg-based ECJ to sit in judgment of the 17 countries' budgets, and establishing legally binding debt ceilings for eurozone governments.

The treaty would enshrine the German model of fiscal and monetarist rigour as binding on the eurozone, in a move that would, in effect, outlaw Keynesian economics.

As global leaders gathered on Wednesday in Davos, Switzerland for their annual deliberations on the world economy, Merkel, delivering the keynote opening speech, sought to shift the debate away from pervasive austerity and spending cuts to promoting growth and jobs, suggesting that labour laws across the EU might be more closely coordinated.

But the prospects for growth in Europe appear abstract and the gloom was deepened by official British figures showing a 0.2% contraction in the UK economy in the last quarter of 2011, pointing the way to the second British recession in three years. Criticism of the pact and the Merkel policy is getting louder. "A lot of time and energy wasted for nothing," Luxembourg's foreign minister, Jean Asselborn, told Der Spiegel this week. "Issues which have more to do with Germany than with Europe are playing an important role." Last week, a Finnish cabinet minister also attacked the treaty as having more to do with German domestic politics than with saving the euro.

But Berlin looks certain to get its way since it says no new permanent euro bailout fund will be established a year early in July without agreement on the treaty.

Opponents say the pact will do little to stem the immediate crisis. The Germans insist in the medium term it will prevent a repeat of the profligacy that caused the near-collapse in the first place.

"There would be no point in promising more and more money without tackling the causes of the crisis," said Merkel. "Amid all the billions in financial assistance and rescue packages, we Germans also need to watch that we don't run out of steam. After all, our capacities aren't infinite, and overstretching ourselves wouldn't help us or the EU as a whole.

"We will only be able to strengthen our common currency if we co-ordinate our policies more closely and are prepared to gradually give up more powers to the EU. If we make loads of promises about debt reduction and sound budgeting, those need to be things that can be enforced or brought to court in the future. The point of the fiscal compact, after all, is to make it possible to check on those commitments. That means giving our [European] institutions more monitoring rights – and more bite."

Merkel again ruled out pooling eurozone debt – eurobonds – as a quick fix to the crisis, but left the option open should the new euro regime produce results.

"Shared liability is something we will only be able to contemplate once the EU has achieved much greater integration. It will not do as a means to resolve this crisis. That greater integration would involve the European court of justice enforcing controls for national budgets, for example, and much more besides. If we at some point have harmonised our financial and budgetary policy, that will be the time to try and find other forms of co-operation and shared liability."

The new pact is an international treaty between participating governments and not European legislation because David Cameron last month took the highly unusual step of vetoing an EU-wide deal.

Despite the prime minister's blockade and the belief in Berlin that he blundered, Merkel sounded conciliatory.

"I am convinced that Great Britain wants to remain a member of the European Union. Of course, it's never easy for 27 states to hold together … We need to find that balance with everyone time and again, including the United Kingdom wherever possible."

On her "vision" for the future of the EU, though, there is unlikely to be any "balance" struck with No 10 because Merkel's hopes for a Europe united politically under a single government are at odds with Britain's views. Besides, Merkel's project would require substantial transfers of powers to Brussels that would run foul of Cameron's EU referendum law.

"My vision is one of political union because Europe needs to forge its own unique path. We need to become incrementally closer and closer, in all policy areas," the chancellor said. "Over a long process, we will transfer more powers to the [European] Commission, which will then handle what falls within the European remit like a government of Europe. That will require a strong parliament. A kind of second chamber, if you like, will be the council comprising the heads of [national] government."

"And finally, the supreme court will be the European court of justice. That could be what Europe's political union looks like in the future – some time in the future, as I say, and after a goodly number of interim stages."

There was no immediate reaction to Merkel's interview from Cameron.

Stefan Kornelius of Süddeutsche Zeitung, Javier Moreno of El País and Bartosz Wielinski of Gazeta Wyborcza contributed to this report

Angela Merkel casts doubt on saving Greece from financial meltdown | World news | The Guardian

Greece's tax-dodging crackdown is a soap opera for the people

Hara Kouki and Antonis Vradis

guardian.co.uk, Tuesday 24 January 2012 16.42 GMT

Corruption must be tackled, but when the Greek people turn the TV off they will realise injustice goes beyond a few rotten apples

Two public prosecutors have expressed intent to investigate the possible criminal responsibilities of George Papandreou. Photograph: Louisa Gouliamaki/AFP/Getty

The images beamed through Greek TV sets have now become a familiar: they show once-powerful, established members of the Greek business world escorted in handcuffs, accused of dodging millions of euros in tax. And on Sunday, as part of an attempt to combat rampant tax evasion, the Greek government published a list naming 4,152 major tax dodgers. The evaders, who had been forewarned to either pay up or risk being named and shamed, appear to owe the state a total of €14.877bn.

In principle, the idea sounds rational and appealing, even: those who profiteered extortionately in the glory days of Greece's capitalist euphoria would finally become accountable, even pay up for their crimes. And yet, this is not the case. Other similar naming and shaming campaigns have been organised in the past few months, only to be forgotten soon afterwards. All these names are far from exceptions in the financial and political bodies, only concrete evidence that so much is rotten in the state of Greece. Were those individuals tried, did they finally pay up their debts, and were governmental funds raised as a result? Nobody has the whole picture, nobody knows – this is just a propaganda trick unfolded before a major restructuring of the country's financial life, which will reinforce the liberalisation of many private sector industries and be accompanied by major labour law changes that will allow further dramatic national cuts.

Since the legal loopholes that structurally allowed – encouraged, even – tax evasion to take place have remain intact, those who bear responsibility for the inconceivable state of the country – the institutions, practices and most importantly much of Greece's political elite – are still currently enjoying their immunity. They still, however, pontificate on morals on our TV screens.

The deeply entrenched feeling of injustice already felt by the Greeks is only increased by a series of taxation policies against personal income that makes bare survival questionable for too many at a time when thousands become unemployed on a daily basis. And it only gets worse: with our social insurance system crippled, as well as hospitals and schools being chronically underfunded, many are losing access to education, care and preventive services. Their only choice, if they can afford it, is to turn to the private sector for basic living amenities.

In response to an expressed intent by two public prosecutors to investigate the possible criminal responsibilities of ex-prime minister George Papandreou and his finance minister Giorgos Papakonstantinou (they suspect the swelling of Greece's public deficit figures in order to trigger a troika intervention), the current minister of health Andreas Loverdos declared that "whoever was to attempt to challenge Papandreou's political choices would be leading the country to carnage". What his words actually mean is that there is a limit in the attribution of justice and, thus, to citizens' equality.

For the time being, famous people are getting caught while journalists speak in economistic terms people do not understand – Greek people remain detached from the dramatic headlines describing their country's economy. But as they switch off their TVs, they immediately return to their impossible survival, their fear and despair. No one can deny that privileges and corruption must be tackled, and that citizens' responsibility must be addressed. And yet, it seems that this cheap tax-dodging soap opera production is less about creating a new citizenship ethos, and more about keeping a poverty-stricken populace lethargic.

This is not entirely working, however. In the past few months, members of parliament have been attacked by enraged passersby when attempting to mingle in their constituency. People on the ground feel more alienated by the day, caught in the headlights of catastrophic restructuring measures. And as this happens, the political elite appears ever fearful that people could gaze beyond the rotten apples to see the system's injustice as a whole.

Greece's tax-dodging crackdown is a soap opera for the people | Hara Kouki and Antonis Vradis | Comment is free | guardian.co.uk

For Greece default is the only option

 

Costas Lapavitsas

guardian.co.uk, Monday 23 January 2012 22.30 GMT

The dreadful debt saga will only come to a close when Greece takes charge of its predicament

Employees of the Greek ministry of culture hold wooden crosses during a march in Athens on 17 January to protest at new debt talks between government, employers and Greece's institutional creditors. Photograph: Aris Messinis/AFP/Getty Images

Negotiations to reduce Greek debt have been suspended after no agreement could be reached last week. At some point in the near future Greece seems certain to default on its obligations. But the drama surrounding the talks in Athens, Berlin and Paris shows that there will be nothing co-operative about Greek default. It is a ruthless contest dominated by the so-called troika: the European Union, the European Central Bank, and the International Monetary Fund.

At every turn the interests and rights of people across Europe have been disregarded. Negotiations have proceeded in secrecy. Greece, whose government is led by an unelected central banker, is represented by a team of politicians and technocrats who have performed lamentably during the crisis. They have hired bankers Lazard Freres and lawyers Cleary Gottlieb, renowned sovereign default specialists, although the benefits remain to be seen. Those who are owed money by Greece have been represented by the International Institute of Finance, a self-styled mouthpiece for bankers. Other lenders, including hedge funds, have no collective representative.

The troika has accepted that Greek debt must be reduced to sustainable levels; but it also wants the reduction to appear voluntary because, if the lenders were coerced, Greece would be declared in formal default, and banks and financial markets would be thrown into crisis. The troika would also like the reduction to be on terms that would allow immediate fresh loans to Greece – an urgent step if the country is not to stop repayments altogether – and wants Greek debt held by official bodies, including the ECB, to remain intact. Not surprisingly, the circle is proving hard to square.

The debt in question is €200bn. About half belongs to Greeks – banks, social security funds and others – who are first in line to bear the costs of reduction (the "haircut"). Less than a quarter belongs to international banks, and a good part of the rest to hedge funds.

The deal proposed by the troika is geared to the interests of lenders, particularly international banks. The face value of the debt would be reduced by 50%, and the remaining debt would be replaced by new long-term bonds bearing a low interest rate, perhaps less than 4%. The new bonds would be subject to British law, which favours lenders.

The losses for international banks would be modest. Even so, they are angling for a higher interest rate, although their bargaining power is weakened by reliance on the state for liquidity and capital. The real blow would fall on Greek banks, which would effectively go bankrupt. The Greek state is thus desperately seeking fresh loans to replenish its banks' capital. Much of the expected reduction of its debt would, therefore, be immediately voided. A cruel blow would also fall on Greek social security funds and small bondholders, with losses probably passing on to pensions and savings.

Meanwhile, hedge funds have been buying Greek debt at low prices in the hope of being paid at, or near, full value. Since Greece has to make debt repayments of almost €15bn in March, huge amounts of European taxpayers' money could potentially be transferred to these vulture funds. The speculators could possibly be coerced into the deal by applying Greek law, but if the reduction were not voluntary, there could be a chain reaction across financial markets.

The worst aspect of the deal is that it is unlikely to benefit Greece long term. The original plan was to bring debt down to 120% of GDP by 2020, but the "rescue" programmes of the past two years have forced the country into a real depression. The IMF now thinks that Greek debt will be on a much higher level by 2020 – clearly unsustainable. It is seeking deeper reductions, but the price would be even harsher cuts in wages, pensions, and public spending. The social repercussions on an already weakened country would be horrendous, quite apart from the political difficulties of introducing further severe austerity.

It is clear that Greece has little to expect from a debt-reduction process led by the troika. It should take charge of its own predicament, abandoning the charade of voluntary haircuts. For that, it needs to default in a sovereign and democratic way by immediately declaring a cessation of payments.

Greece should then publicly audit its debts to decide what should be paid and how. The objective should be to restart economic growth and to avoid disruption of basic social services. Debt would inevitably be cancelled, including official debt held by the troika, and there should be negotiations with the lenders under full public scrutiny. Only then could this dreadful saga come to a close, allowing Greek society to take the first steps on the long path to recovery.

 

 

For Greece default is the only option | Costas Lapavitsas | Comment is free | The Guardian

Greece names and prosecutes celebrity tax evaders

Helena Smith in Athens

guardian.co.uk, Monday 23 January 2012 20.39 GMT

Singer Tolis Voskopoulos and retired basketball player Michael Misounof among 4,000 citizens identified, owing €15bn

Greek government has moved fast to prosecute tax evaders for the first time. Photograph Katerina Mavrona/EPA

Prospects of Greece securing a debt deal that might save the eurozone from further turmoil were eclipsed on Monday by the news that some of the nation's leading celebrities have been hoodwinking the taxman for years.

As the world frets over the country's increasingly unmanageable debt burden, the finance ministry has revealed that 4,151 Greeks owe €14.9bn (£12.4bn) to the state – more than the €14.5bn bond repayment Athens has to make in March.

The list includes the singer Tolis Voskopoulos, a former basketball star, Michael Misounof and high-profile entrepreneurs, many of them behind bars. Fifteen offenders owed more than €100m, each, in back taxes with one man, an accountant serving several life sentences, owing €952m.

Greece is estimated to have lost about €60bn in unpaid taxes according to an EU report released in November. The nearly €15bn owed by those named and shamed on Monday is the equivalent of 0.7% of the country's gross economic output. The dodgers had gone to extraordinary lengths to hide earnings, often stashing their money in offshore accounts.

Tax evasion is seen as the single biggest drain on revenues with EU and IMF officials blaming the country's missed budget targets on this dodge.

With ordinary citizens hard hit by rising inflation, deepening recession and repeated wage and pension cuts, Athens' ten-week-old interim government has moved speedily to prosecute tax evaders with culprits being arrested and charged for the first time. "It is no longer easy to be a tax evader in Greece," said George Pagoulatos, a senior adviser to prime minister Lucas Papademos.

The government had to change privacy laws before publishing the list compiled in November.

Greece names and prosecutes celebrity tax evaders | Business | guardian.co.uk

What happens if Greece defaults?

Telegraph staff and agencies

11:15AM GMT 21 Jan 2012

Greece is expected to announce a bond swap deal with private sector creditors that will see at least half the value of their investments in its debt written off. We look at what this means for investors, the wider market, and Greece itself.

Fitch's Rawkins said Greece's restricted default rating would be maintained "for a short period" before it was reassessed, taking into account changes to the country's debt profile. Photo: Reuters

Greece's current ratings

The three big credit rating agencies - Fitch, Moody's and Standard & Poor's - downgraded Greece in July after the debt swap plan was unveiled, assigning it "highly speculative" status and warning that losses for private creditors would imply a default.

Fitch rates Greece CCC, S&P rates it CC and Moody's Ca.

Selective or outright default?

Fitch and S&P make a distinction between a selective or restricted default, where a borrower stops making interest or principal payments on some debts, and an outright inability or refusal to repay creditors.

Market players often make similar distinctions, referring to "orderly and disorderly", "soft and hard" or "managed and messy" defaults.

Both rating agencies have said a debt exchange under which creditors take losses, whether voluntary or otherwise, would be a selective or restricted default.

S&P said in July it would revise Greece's sovereign rating to "selective default" when any debt restructuring is implemented, with the affected bonds being cut to D, its lowest rating, denoting a default.

Fitch's lead analyst for Greece, Paul Rawkins, said on Wednesday that Greece would be assigned its "restricted default" rating when the bond exchange period closes.

Moody's does not make a similar distinction but its lowest rating of C implies a default with little prospect for recovery of principal or interest.

What happens afterwards?

S&P and Moody's each said in July that once a restructuring is completed they will reassess Greece's creditworthiness in light of its reduced debt burden, which is likely to mean its ratings are upgraded. S&P said it expected to assign "a low speculative-grade rating" to Greece, reflecting its still-high debt and uncertain growth prospects.

New bonds issued under the debt swap will also be rated, possibly - since some will be collateralised - at a higher level than unsecured Greek government bonds.

Fitch's Rawkins said Greece's restricted default rating would be maintained "for a short period" before it was reassessed, taking into account changes to the country's debt profile.

An outright default would be seen as a sign politicians had lost control of the single currency, and markets would immediately take aim at other weak countries such as Italy, Spain and Portugal.

Will there be a credit event?

The International Swaps and Derivatives Association (ISDA), has the final say on whether a "credit event" has occurred, triggering the payment of default insurance taken out on Greek bonds via the credit default swap (CDS) market.

In October, when Greece's second bail-out was initially agreed, the ISDA said that the voluntary nature of the deal meant that it would not trigger payments under existing CDS contracts.

This week, talk of retrospectively applying collective action clauses (CACs), which would prevent a minority of investors from blocking any restructuring deal, sparked talk of disorderly default.

The ISDA concluded that "the inclusion of a CAC would not, in and of itself, be expected to trigger a Credit Event. On the other hand, the use of such a clause to effect a reduction in coupon or principal or one of the other events set out in the definition of the Restructuring Credit Event could trigger if the other requirements of the Restructuring Credit Event were met (for example decline in creditworthiness), as its effect would be to bind all holders of the relevant debt."

According to the latest data from DTCC, outstanding credit default swaps on Greek debt total $70.8bn gross and $3.2bn net. Forced losses for investors would almost certainly be considered a credit event, even as part of an "orderly" default.

Greek prime minister Lucas Papademos told the New York Times this week he will consider legislation forcing creditors to take losses if no agreement can be reached.

An outright default, where Greece does not meet interest payments or repay principal, would prompt ISDA to declare a credit event as grace periods expire.

What happens if Greece defaults? - Telegraph

Hedge Funds May Sue Greece if It Tries to Force Loss

By LANDON THOMAS Jr. Published: January 18, 2012

Charles Dallara, left, of the Institute of International Finance and Jean Lemierre of BNP Paribas left the Athens office of Prime Minister Lucas Papademos of Greece on Wednesday after talks. / Louisa Gouliamaki/Agence France-Presse — Getty Images

LONDON — Hedge funds have been known to use hardball tactics to make money. Now they have come up with a new one: suing Greece in a human rights court to make good on its bond payments.

The novel approach would have the funds arguing in the European Court of Human Rights that Greece had violated bondholder rights, though that could be a multiyear project with no guarantee of a payoff. And it would not be likely to produce sympathy for these funds, which many blame for the lack of progress so far in the negotiations over restructuring Greece’s debts.

The tactic has emerged in conversations with lawyers and hedge funds as it became clear that Greece was considering passing legislation to force all private bondholders to take losses, while exempting the European Central Bank, which is the largest institutional holder of Greek bonds with 50 billion euros or so.

Legal experts suggest that the investors may have a case because if Greece changes the terms of its bonds so that investors receive less than they are owed, that could be viewed as a property rights violation — and in Europe, property rights are human rights.

The bond restructuring is a critical element for Greece to receive its latest bailout from the international community. As part of that 130 billion euro ($165.5 billion) rescue, Greece is looking to cut its debt by 100 billion euros through 2014 by forcing its bankers to accept a 50 percent loss on new bonds that they receive in a debt exchange.

According to one senior government official involved in the negotiations, Greece will present an offer to creditors this week that includes an interest rate or coupon on new bonds received in exchange for the old bonds that is less than the 4 percent private creditors have been pushing for — and they will be forced to accept it whether they like it or not.

“This is crunch time for us. The time for niceties has expired,” said the person, who was not authorized to talk publicly. “These guys will have to accept everything.”

The surprise collapse last week of the talks in Athens raised the prospect that Greece might not receive a crucial 30 billion euro payment and might miss a make-or-break 14.5 billion euro bond payment on March 20 — throwing the country into default and jeopardizing its membership in the euro zone.

Talks between the two sides picked back up on Wednesday evening in Athens when Charles Dallara of the Institute of International Finance, who represents private sector bondholders, met with Prime Minister Lucas Papademos of Greece and his deputies.

While both sides have tried to adopt a conciliatory tone, the threat of a disorderly default and the spread of contagion to other vulnerable countries like Portugal remains pronounced.

“In my opinion, it is unlikely that this is the last restructuring we go through in Europe,” said Hans Humes, a veteran of numerous debt restructurings and the president and chief executive of Greylock Capital, the only hedge fund on the private sector steering committee, which is taking the lead in the Greek negotiations.

“The private sector has come a long way. We hope that the other parties agree that it is more constructive to reach a voluntary agreement than the alternative.”

At the root of the dispute is a growing insistence on the part of Germany and the International Monetary Fund that as Greece’s economy continues to collapse, its debt — now about 140 percent of its gross domestic product — needs to be reduced as rapidly as possible.

Those two powerful actors — which control the purse strings for current and future Greek bailouts — have pressured Greece to adopt a more aggressive tone toward its creditors. As a result, Greece has demanded that bondholders accept not only a 50 percent loss on their new bonds but also a lower interest rate on them. That is a tough pill for investors to swallow, given the already steep losses they face, and one that would be likely to increase the cumulative haircut to between 60 and 70 percent.

The lower interest rate would help Greece by reducing the punitive amounts of interest it pays on its debt, making it easier to cut its budget deficit.

To increase Greece’s leverage, the country’s negotiators have said they could attach collective action clauses to the outstanding bonds, a step that would give them the legal right to saddle all bondholders with a loss. This would particularly be aimed at the so-called free riders — speculators who have said they will not agree to a haircut and are betting that when Greece receives its aid bundle in March, their bonds will be repaid in full.

If the collective action clause is used — and Greek officials say it could become law next week — these investors, who bought their bonds at around 40 cents on the dollar, are likely to suffer a loss.

That, in turn, could prompt suits from investors claiming in the Court of Human Rights that their property rights had been violated.

“Because Greece is changing the bond contract retroactively, this can become an issue in a human rights court,” said Mathias Audit, a professor of international law at the University of Paris Ouest.

Not all funds are pursuing such a strategy. Such a case would take years and would have to run its course in Greece before being heard by human rights judges in Strasbourg, France.

But with their considerable financial resources, some funds may be willing to pursue such a route, and they point to similar cases won by hedge funds in Latin America. While the prospect of Greece paying an investor any time soon is slim, the country wants to avoid a parade of lawsuits across Europe, which would restrict its ability to raise money in international markets.

Argentina, which defaulted on its debts in 2002, still faces legal claims from investors that have made it nearly impossible for the country to tap global debt markets.

“It cannot be Angela Merkel that decides who suffers losses,” said one aggrieved investor who was considering legal action and did not want to be identified for that reason. “What Europe is forgetting is that there needs to be respect for contract rights.”

It is not just the legal cudgel that investors are threatening to use. Some hedge funds have discussed among themselves the possibility of demanding a side payment, as they describe it, as a price Europe and Greece must pay if the two want the funds to participate in the agreement.

With the stakes so high, a compromise may well be reached. Germany and the I.M.F. may realize that if the private sector is pushed too hard, the deal will collapse and they will have to pay even more money to keep Greece afloat in the coming years.

Eager to put the issue behind them, private sector creditors may accept a larger loss and exchange their nearly worthless Greek bonds for more valuable securities that would also offer enhanced protection if Greece had to restructure in the future.

As for the holdouts, they could run up millions of dollars in legal bills chasing after Greece in European courts.

But beyond all the byzantine wrangling, a crucial question is how this would benefit Greece. Even with the deal, Greece’s debt would be no less than 120 percent of G.D.P. in 2020 — which seems to be slight progress given the austerity and pain its citizens must endure during this period.

“The real issue is not who participates in the deal,” said Jeromin Zettelmeyer, the deputy chief economist at the European Bank for Restructuring and Development and an authority on sovereign debt. “The question is whether there is enough debt relief for Greece, and there may not be, because the fiscal and growth situation in Greece is quite dire.”

Hedge Funds May Sue Greece if It Tries to Force Loss - NYTimes.com

Papademos Says Greece’s Creditors Could Be Forced to Take Losses

By RACHEL DONADIO Published: January 17, 2012

Prime Minister Lucas Papademos of Greece in his office. The debt crisis has occupied him since he took office in November. /Eirini Vourloumis for The New York Times

ATHENS — Taking direct aim at hedge funds and other private holders of Greece’s debt, Prime Minister Lucas Papademos says he will consider legislation forcing the creditors to take losses on their holdings if no agreement can be reached in critical negotiations scheduled to resume Wednesday.

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In a wide-ranging, 90-minute conversation on Monday night, his first with a newspaper since he came to office in November, Mr. Papademos also called on Greek politicians to pass the economic measures demanded by Greece’s foreign lenders in exchange for bailout aid, saying vested interests with political ties had helped to block the changes needed to revive the country’s rigid and moribund economy.

But he added that European leaders did not act swiftly enough to tackle the debt problem when it first arose in early 2010. And he said Greece’s foreign lenders should have introduced growth measures earlier in its program for the austerity-squeezed country, whose economy is expected to shrink by 6 percent this year and where unemployment is 18 percent and rising.

Mr. Papademos’s most pointed remarks appeared aimed at the private bondholders who have increasingly more sway over Greece’s fate than do its politicians or even the prime minister.

Mr. Papademos said that if Greece did not receive 100 percent participation in a program in which bondholders would voluntarily write down $130 billion from Greece’s unwieldy $450 billion debt, the country would consider passing a law to require holdouts to take losses.

“It is something that has to be considered in the light of expectations about the degree of the participation to be achieved,” Mr. Papademos said. “It cannot be excluded. It is contingent on the percentage.”

The prime minister is a former vice president of the European Central Bank, a nonpolitician brought in to lead an interim government with a mandate to secure new bailout funding as part of a new loan agreement.

His comments came after talks broke down last week between Greece and its creditors over the terms of a “voluntary” default, in which the private bondholders will agree to a 50 percent reduction or more in the value of their holdings. The so-called troika — comprising the European Central Bank, the European Union and the International Monetary Fund — has demanded such a deal as a condition to extending more aid.

Many private investors, like hedge funds, pension funds and banks, would just as soon see an involuntary default, because much of their holdings are insured through credit default swaps.

But European leaders are dead set against such a “credit event,” which could ignite a chain reaction with unpredictable and potentially catastrophic results for the world financial system.

However, the prime minister said he expected the talks to be completed successfully. “The talks are not straightforward, because they aim at a voluntary restructuring of public debt, and to achieve a number of objectives simultaneously, objectives that involve trade-offs,” Mr. Papademos said. “Taking into account the complexity of the exercise, I would say that we are very close to reaching an agreement.”

There is a growing sense in Europe that a Greek default cannot be avoided, if not now then perhaps in March, when a bond comes due that the country cannot pay without more financing from the troika. “I am aware of that,” Mr. Papademos said, adding that he thought the new financing would be approved. “I think the facts reveal that the European partners have taken extraordinary measures to help Greece address its problems.”

In conversation Mr. Papademos, who lived in Frankfurt and served as a vice president of the European Central Bank from 2002 until his retirement in 2010, is a true technocrat — quiet, polite, measured, rational. Unlike his technocratic counterpart, Prime Minister Mario Monti of Italy, who has acute political instincts and appears to thrive in the Italian political circus, Mr. Papademos is clearly ill at ease with the thrust and parry of political life.

He has not yet held a news conference in Greece, and was taken aback by a reporter’s questions about how the crisis had affected his friends and family or where he kept his personal savings.

“I have moved absolutely nothing out of Greece,” he said.

He bristled at the suggestion that he was out of touch. “I am fully aware of the adjustments that are needed and of the sacrifices being made by the people. You don’t only have to look at the numbers, the fact that the unemployment rate is 18 percent. You can walk in the city and see.”

He asked Greeks to put their sacrifices in perspective. If all goes well, he said, they could expect “an end to austerity” next year. He added that the tough measures were aimed at ensuring Greek wage stability in the future, including for low-income wage earners.

Mr. Papademos has not gotten a lot of help from his own government, which so far has failed to pass or carry out legislation required by the troika in exchange for more financing. But experts say that Mr. Papademos is doing his best considering the situation he inherited.

“I’m not suggesting there has been a revolution, but I think there’s a slow change,” said Loukas Tsoukalis, the president of the Hellenic Foundation for European and Foreign Policy, an Athens research institute. “Greece is showing enormous difficulty and reluctance in going ahead with reforms, and very often reluctance in implementing what has already been passed — but it is moving slowly.”

But timing is everything. Mr. Papademos said his mandate was to secure a new bailout and new loan agreement, not to solve all of Greece’s problems, and that his government would be short-lived.

“I would say the baseline scenario is for elections to be held sometime in April,” he said.

Until then, he added: “I am confident that we can overcome this crisis, provided that we remain united in our effort to address our debt and competitiveness problems. And I think that the Greek people are united; it’s important also that the political forces are united in line with the will of the Greek people.”

Papademos Says Greece’s Creditors Could Be Forced to Take Losses - NYTimes.com

Greece sends officials to US as default fears grow

By Martin Strydom 3:44PM GMT 16 Jan 2012

Greece has sent top officials to the US for talks with the International Monetary Fund as it returns to centre stage in the eurozone crisis over fears that a debt deal impasse with bondholders could trigger a messy default.

Women look at a shop window during the first day of the official sales season in Athens on Monday as the country teeters on the edge of default. Photo: Reuters

The Greek Prime Minister Lucas Papademos said on Monday he was confident agreement on a debt swap plan would be reached by the time eurozone finance ministers meet next Monday.

Greece has a €14.4bn bond maturing on March 20 that it can’t afford to pay in full.

A crucial second, €130bn rescue loan from the EU, IMF and ECB is dependent on reaching an agreement on a bond swap with creditors that are being asked to take a voluntary 50pc loss on their Greek government bonds.

Talks with private bondholders are said to be resuming on Wedesday after breaking up without a resolution on Friday.

"There is a little pause in these discussions. But I am confident that they will continue and we will reach an agreement that is mutually acceptable in time," Mr Papademos said in an interview with CNBC.

 

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The deal needs to be in place by the time EU, IMF, and ECB officials are to arrive in Athens next week to finalise the bailout.

If Greece does not get enough bondholders to participate in the debt deal - it needs at least 95pc - then it may have to force the rest of the creditors to stump up. This could trigger credit-default swap contracts.

Under the bailout terms agreed in October, private investors tentatively agreed to take a "50pc haircut" as part of a plan to reduce the country's debt from 160pc of GDP to 120pc in 2020.

Charles Dallara, head of the Institute of International Finance who represents Greece's private creditors, told the Financial Times that the Greeks were not the problem.

"All the European heads of state said they wanted a deal with a 50 per cent (haircut) and a voluntary agreement," he was quoted as saying. "Some of their own collaborators are not following that decision."

Negotiations are said to have stalled over the interest rate Greece must pay on new bonds it offers. Reuters, citing a banking source, said some foreign lenders that are keeping Greece afloat with aid had sought a coupon of less than 4pc. This would have meant losses of over 75pc for some banks.

The head of Greece's debt agency and a senior adviser are reported to be travelling to Washington to meet IMF officials to help resolved the impasse.

Greece is in its fifth year of recession and in recent months had been flirting with bankruptcy, with only bailout loans from European partners and the IMF agreed on condition of unpopular austerity measures preventing a default.

Greece sends officials to US as default fears grow - Telegraph

Greek protesters take to Athens streets as creditors arrive for debt talks

Phillip Inman, economics correspondent and Helena Smith in Athens

guardian.co.uk, Tuesday 17 January 2012 20.43 GMT

EU hopes for quick deal on 50% debt write-off as Papademos government insists it can and will impose reform

Greek protesters chant slogans during a 24-hour strike against the austerity measures in Athens. Photograph: Louisa Gouliamaki/AFP

Greece is braced for a second day of protests as representatives of international creditors arrive in Athens for crucial talks on plans to write off 50% of the country's debts.

Negotiations over Greece's ballooning debts are expected to be accompanied by protesters accusing lenders of holding the country to ransom with demands for sky-high interest rates.

As tens of thousands of striking workers took to the streets of the capital on Tuesday, in the first mass walk-out of 2012, many chanted "down with the Papademos government here and now!"

EU officials, who had arrived in Athens with representatives from the International Monetary Fund, and European Central Bank (ECB), are known to want a quick deal to avoid a Greek default.

A team led by Charles Dallara and Jean Lemierre, officials from the Institute of International Finance, will meet government negotiators to hammer out a deal that eluded them last week after several days of meetings.

Dallara said this week that talks had yet to reach agreement on any aspect of a deal following demands from Greek negotiators for "unrealistically" low interest rates on its outstanding debts.

The interim Greek government has hit back at accusations that Athens had neither the will nor ability to enforce economic reforms, with officials categorically rejecting the idea that the debt-hit country was heading for a messy default.

Policymakers pointed to the headway Greece had made. George Pagoulatos, an adviser to the prime minister, Lucas Papademos, said: "In the past two years the primary deficit has been reduced by nearly €20bn, a European record." Noting the net reduction of 132,000 civil servants since the start of 2010, he said: "Overall costs in the public sector have also been cut dramatically."

Officials from the EU and IMF have repeatedly accused Athens of failing to implement reforms. But in his first on- the-record interview, Pagoulatos said Papademos, a former vice-president of the ECB and Greece's first technocrat leader in decades, had accelerated changes to make the economy more competitive.

"In recent months, a large number of prominent tax evaders have been prosecuted," Pagoulatos said. "Professions closed for decades have been opened up, the judicial system has been streamlined, which has reduced the cost of doing business in Greece, and the process for new business startups simplified."

He said the negotiations over debt restructuring were "back on track" after being suspended. "The agreement will be concluded in a couple of weeks at most."

Stock markets jumped on Tuesdaydespite concerns that negotiators would struggle to piece together a deal before Greece is forced to redeem €14.5bn of loans at the end of the month.

Investors were cheered by a sharp rise in China's GDP, which showed the Chinese economy grew by 8.9% in the fourth quarter of 2011. The growth figure was the lowest for two and a half years, but beat economists' forecasts suggesting Chinese exports would be hit badly by the eurozone crisis.

Oil prices rose on the prospect of resurgent growth in China coupled with a strong rise in analyst and investor sentiment in Germany after a January reading of -21.6 from the Mannheim-based ZEW economic think-tank improved on the -53.8 figure in December.

The Spanish treasury, meanwhile, sold €3bn of 12-month bills at an average yield (interest rate) of just 2.049%, down from 4.05% the last time it sold this type of debt. This is another sign that S&P's downgrades (it cut Spain by two notches from AA- to A) have not spooked investors.

The US Dow Jones was up 105 points at 1800 GMT to reach 12527, while the FTSE closed at 5693, up 0.65%.

Several analysts said the reaction to China's growth was wishful thinking and the world's second largest economy was still on a downward trajectory. Chang Jian, a Hong Kong-based economist at Barclays Capital, told Bloomberg a deeper recession in Europe, which might cause a sharper slump in demand for China's exports and a "disorderly correction'' in the property market, were the biggest risks to the economy.

The world's largest exporter might see shipment growth halve this year, while property investment, which accounts for about a fifth of the nation's fixed-asset spending, might expand at half last year's rate, Chang said.

Capital Economics said China's overheating property market was ripe for a fall and could cause huge internal problems if developers went bust and banks were left nursing large debts.

China has urged EU leaders to resolve the debt crisis, starting with a resolution to the Greek debt situation. But Brussels has struggled to bring countries with different outlooks on the crisis together.

Finland is against a close fiscal union and informed Brussels that the need for a two-thirds majority in its parliament meant any vote on plans for a veto over member budgets was likely to be lost.

Meanwhile, the ECB has made it known the plans for a fiscal pact are weak and need to be strengthened before it can agree to take further action to boost bank balance sheets.

The negotiations in Athens will involve creditors exchanging their existing Greek bonds with new ones of a lower value, with the bigger aim of cutting Greece's debt by €100bn (£83bn).

The bond swap is crucial because it is a precondition for a second, €130bn bailout for Greece. The country's international rescuers, the troika of Brussels, the IMF and ECB, have warned that they will not extend any more support if a bond swap deal is not agreed.

That means Greece could default on its debt in late March when the €14.5bn bond repayment is due, potentially threatening the entire eurozone's financial stability.

Adding to the pressure on Greece, inspectors from the troika are expected to press the government for faster cost-cutting reforms.

About 10,000 protesters have taken part in rallies in central Athens, demonstrating over potential pay cuts in the recession-battered private sector. Anti-austerity strikes in the capital disrupted public transport and other services, while journalism unions also launched a 48-hour strike.

Police said that a plainclothes officer from the anti-terrorism division had been beaten and seriously injured by a group of about 30 protesters, who also took his handgun. The rally otherwise had been peaceful.

Under government pressure, unions and employers are due to begin talks on Wednesday to explore ways of slashing labour costs.

Greek protesters take to Athens streets as creditors arrive for debt talks | Business | The Guardian

Greece to rent out ancient sites

Updated January 18, 2012 12:03:41

Photo: Available for rent: The Parthenon atop the Acropolis (Yiorgos Karahalis: Reuters)

In a move bound to leave many Greeks and scholars aghast, Greece will open up some of the debt-stricken country's most-cherished archaeological sites to advertising firms and other ventures.

The Greek culture ministry says the first site to be opened will be the Acropolis.

It says the move is a commonsense way of helping "facilitate" access to the country's ancient Greek ruins, and says money generated will fund the upkeep and monitoring of sites.

For decades, archaeologists have slammed such an initiative as sacrilege.

The culture ministry says any renting of ancient Greek sites will be subject to strict conditions.

According to a ministerial briefing dating from the end of December, a commercial firm could rent the Acropolis for a professional photographic shoot for as little as 1,600 euros a day ($1,950). Demonstrators could also rent the ancient landmark.

Greece needs every euro it can get. The country's public coffers are drained and the nation is struggling to avoid a historic debt default in March.

Greece was bailed out in May 2010 by the European Union and International Monetary Fund and is in the process of nailing down a second rescue, though it is undergoing tough talks with private creditors to reduce its massive debt mountain.

Commercial use of Greece's archaeological sites has until now been the responsibility of the Central Council of Archaeology, which has been very choosy about who gains access.

In recent decades, only a select few people, including Greek-Canadian filmmaker Nia Vardalos and American director Francis Ford Coppola, have been able to use the Acropolis.

Most filming and advertising requests have been refused.

Greece to rent out ancient sites - ABC News (Australian Broadcasting Corporation)

Albanians in Greece: Heading home again

Jan 14th 2012 | THESSALONIKI AND TIRANA

Worried Albanians in northern Greece prepare to go home

IT IS lunchtime and children pour out of Sunday-school classes in Thessaloniki. Waiting parents seem agitated as they talk to Valbona Hystuna, a teacher. The adults speak Albanian; the children talk to each other in Greek. Many of the youngsters have no knowledge of Albania. But the crisis in Greece is forcing their families to return home.

The latest census by Albania’s statistical office found only 2.8m inhabitants in the country, several hundred thousand fewer than expected and 7.7% less than a decade ago. As many as 1.4m are believed to have emigrated in the past 20 years, over half of them to Greece. But jobless Albanians have begun to return. Many men worked in construction, which has ground to a halt in Greece.

There is much anecdotal evidence of Albanians going home, but few statistics. Edmond Haxhinasto, Albania’s foreign minister, says only a few have returned. Still, Ms Hystuna says that “a lot of people have left, a lot plan to leave and everyone is talking about it.” In the past many Albanians lived and worked in Greece illegally, but most of them now have residence permits. Yet those who lose their jobs may also lose their permits, forcing them either to return home or to stay illegally.

Albanians have mostly integrated well. Their children often speak better Greek than Albanian; many need language classes before going back to Albania. But, says Ms Hystuna, the Greeks can make life difficult. The anxious parents she spoke to told her that the authorities have, out of the blue, insisted that the Albanian papers their Greek-born children have are unacceptable, since they use the Albanian rather than the Greek name for Thessaloniki.

As with migrant numbers, remittances are hard to measure. But what figures there are point to a sharp decline. In 2007 migrants sent home an estimated €950m ($1.3 billion). In 2010 that figure shrank to €690m; for the first three quarters of 2011 it was €475m. In 2009 remittances were reckoned to make up 9% of Albania’s GDP. Yet the economy, unlike Greece’s, has not gone into recession: it is expected to have grown by 2.5% in 2011.

Many Albanians in Greece are transferring savings to banks at home, fearful of what might happen if Greece leaves the euro. Some Greek companies have also begun to set up firms in Albania run by trusted Albanians who worked for them in Greece. So far, the effects of being a tiny economy largely dependent on recession-hit Greece and Italy have been negative but not disastrous. Yet as more Albanians move back, they will find jobs (and decent wages) scarce at home.

Albanians in Greece: Heading home again | The Economist

Greek woes: The Mediterranean blues

Jan 14th 2012 | ATHENS

Greece’s economic crisis is worsening—as is life for ordinary Greeks

A Greek tricoteuse before the fall

THE news from Greece gets ever grimmer. GDP will shrink in 2012 for the fourth year in a row. Talk of a default and/or departure from the euro is growing. This week Angela Merkel, Germany’s chancellor, demanded urgent progress towards a deal imposing a “haircut” on private creditors (which may now have to be bigger than 50%), saying that Greece might otherwise not get its second European Union/IMF loan. And thieves have just stolen a Picasso painting from the national gallery, where only one guard was on duty.

Yet most evenings Athens is buzzing. Around Syntagma Square, the scene of so many protests, the streets are crowded, with cheery music playing. In nearby Karytsi Square, bars and restaurants are packed with rowdy people; some are even jolly. The mojitos may have been replaced by cheap beer, but Athenians live for an evening out with friends. “Staying home is not an option,” says a classics student from Athens University. “It’s too depressing.”

In this section

• A false dawn
• Unhappy new year
• Boney-park
• Heading home again
• To opt in or not to opt in

But when day follows night, the buzz gives way to bleakness. Sofokleous Street, home of the Athens Stock Exchange until 2007, is now the site of the city’s main soup kitchen. It is a meeting-place for the homeless and for those too poor to afford food. To the east, on Kifissias Avenue, many small shops have gone bust, often to be replaced by gold dealers, pawnbrokers or seedy shops selling sexual paraphernalia.

There has been a surge in crime. Police statistics show both petty theft and breaking and entering on the rise. In the first half of 2011 some 314 house burglaries were reported in Athens, over twice as many as in 2010. Crime has spread to places thought of as safe only a couple of years ago.

Homelessness has also shot up. Klimaka, a charity, estimates that 20,000 people in Greece have no home, 25% more than in 2008. Before the crisis, the homeless were usually 35- to 50-year-old reclusive men from poor backgrounds. Now the streets are home to the young, struggling to find jobs, and the middle-aged, whose careers have been cut short. Many are educated; some are graduates. Most have lost their homes because of debts. Georgios Barkouris, a musician from a middle-class Athenian family, worked for two decades for the national radio station. When recession hit he found himself without a job—and, soon enough, without a home, too. One in five Greeks lives below the poverty line. “Expecting homelessness to double this year”, says Mr Barkouris, “is awfully optimistic.”

Since Greece’s first bail-out in May 2010, the government has imposed austerity, increasing taxes so much that people can barely manage. The unemployment rate is 19% and rising. GDP has contracted by 12.5% since 2008 and is expected to fall by another 3% this year. Even middle-class Greeks are being driven into poverty. Property prices and rents have plunged. But property taxes have tripled.

The biggest blows have fallen on small family businesses (with 50 employees or fewer), which make up 99% of enterprises and employ three-quarters of the private-sector workforce. Many have closed or sacked most of their staff. Big businesses (such as banks or private hospitals) are suffering, too. Indeed, the entire private sector is haemorrhaging workers. Of the 470,000 who have lost their jobs since 2008, not one came from the public sector. The civil service has had a 13.5% pay cut and some reductions in benefits, but no net job losses. Already low, public-sector productivity has fallen further. This has led to deep resentment of the civil service, which has mushroomed in the past three decades and now employs almost a fifth of the workforce.

Outside Athens the situation is a little better. Except for Thessaloniki, Greece’s second city, the rest of the country has not seen the protests and social unrest of the capital. The cost of living and house prices are lower and family ties stronger. “Everyone has a place to stay here,” notes a teacher in Preveza, a coastal town in the north-west. Crime is lower. Figures from the Research Institute for Tourism show that in 2011, 64% of murders and 75% of robberies took place in the capital.

The economy is also holding up better outside Athens. Tourism and agriculture have always counted for more in the countryside and on the coasts. The Association of Greek Tourism Enterprises reports that, in the first half of 2011, tourist arrivals increased by 13.9% (and revenues by 13.4%) over the same period in 2010. And farm exports have risen by 9.1%. A few city workers are even going back to the land. Outside Athens some in the public sector see their jobs as a sideline to earn pin money while their main occupation is farming.

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Many Greeks have chosen to move abroad in search of a better future. Successful academics, bankers and engineers have already fled for better pay and work conditions. Some have even gone without a job offer, usually to places such as Australia or Canada, where the Greek Diaspora is large. The most destructive brain drain is of the young. Since 2008, ever more young people (mostly in their 20s) have gone, often to foreign universities. “When I left to study abroad in 2006 I was the odd man out,” says a young Greek lawyer. “Now I thank my lucky stars.” Greece’s archaic education system and strikes have held back those who pursued their education at home. Exams have been delayed or cancelled. Some students are a year or more behind in their studies.

If they manage to graduate, the prospects are still poor. Youth unemployment is over 47% (and rising). Those lucky enough to find a job are underpaid, overtaxed and, often, overqualified. They, too, may drift abroad. Young doctors go to Sweden for specialist training; engineers move to Abu Dhabi; many others head for Berlin, where life is cheaper and more fun. All this hugely damages Greece’s prospects, given an ageing population. Within a decade the workforce will be shrinking, although the number of pensioners will keep growing.

Disenchanted on Syntagma Square

Not surprisingly the popularity of politicians and political parties is at an all-time low. Some voters have warmed to a populist, anti-EU message. But they have not yet gathered enough traction to challenge Greece’s pro-EU, pro-euro course. The chief feeling is of disenchantment, not with Brussels or Berlin, but with the two main parties whose corruption, nepotism and incompetence helped create such a terrible mess. Polls find 77% of Greeks wanting the unity government led by Lucas Papademos, a technocrat and former central banker, to take all necessary measures to keep Greece in the euro. For the time being, the consensus is that an exit would spell disaster.

The preference for Mr Papademos reflects his apolitical credentials and financial expertise. His 66% approval rate is the highest among political leaders and over three times that of his Socialist predecessor, George Papandreou. Since he took over in November a measure of calm has returned. But that is now threatened by renewed crisis—and by a general election expected in April. The election may prove a risky distraction from the structural changes required for Greece to secure its next tranche of aid. The centre-right New Democracy is expected to trounce the Socialists, but voters could yet elect a parliament with seven or eight parties, forcing it into a coalition that might find it harder to push through reforms.

For over 30 years Greeks lived lavishly as the public sector became bloated, EU money poured in and many people routinely tricked the system. During the past three years, Greeks have been asked to endure hardship and humiliation. It is no wonder that they have often taken to the streets, nor that they feel depressed. The question is how much more they can take. The election could prove to be a breaking-point, as Greece stumbles towards disorderly default. So far the Greek people have demonstrated extraordinary stoicism—but that may not last forever.

Greek woes: The Mediterranean blues | The Economist